Belfer v. Merling

• Citation: 322 N.J. Super. 124,730 A.2d 434
• Parties: Corrine S. BELFER, Executrix of the Estate of Norbert Belfer, individually and as a shareholder of Lighting World, Inc., Plaintiff-Respondent/ Cross-Appellant, v. Linda K. MERLING, Bruce Belfer, Elaine Belfer, Christine Weiss, Donald Davenport and Lighting World, Inc., Defendants-Appellants/ Cross-Respondents.
• Decision Date: 16 June 1999
• Court: New Jersey Superior Court

730 A.2d 434

322 N.J. Super. 124

Corrine S. BELFER, Executrix of the Estate of Norbert Belfer, individually and as a shareholder of Lighting World, Inc., Plaintiff-Respondent/ Cross-Appellant¹, v. Linda K. MERLING, Bruce Belfer, Elaine Belfer, Christine Weiss, Donald Davenport and Lighting World, Inc., Defendants-Appellants/ Cross-Respondents.

Superior Court of New Jersey, Appellate Division.

Argued March 29, 1999.

Decided June 16, 1999.

Alan M. Lebensfeld, Red Bank, for defendants-appellants/cross-respondents (Lebensfeld, Borker & Sussman, attorneys; Mr. Lebensfeld and Lawrence J. Sharon, on the brief).

Samuel Feldman, Roseland, for plaintiff-respondents/cross-appellants (Orloff, Lowenbach, Stifelman & Siegel, attorneys; Mr. Feldman and Craig A. Ollenschleger, on the brief).

Before Judges HAVEY, PAUL G. LEVY and LESEMANN. The opinion of the court was delivered by PAUL G. LEVY, J.A.D

These appeals arise from a dispute among family members of a closely held corporation, Lighting World, Inc. The two principals of the company, plaintiff Norbert Belfer and defendant Linda Merling, were divorced after a thirty year marriage. The couple executed a property settlement agreement (PSA) that was incorporated into the judgment of divorce. The PSA was essentially a shareholders agreement for Lighting World, giving each party a one-half ownership interest in the company, but allowing plaintiff to be chief executive officer (CEO) for the "foreseeable future." The agreement also created a deadlock committee to deal with situations where the couple could not agree on major decisions and to forestall resort to the courts.

Things ran relatively smoothly for almost four years following the divorce. Then, plaintiff and his son Bruce, who was president of the company, had a dispute when plaintiff told Bruce he was discharged as president. That dispute triggered a meeting of the deadlock committee, and the committee took certain actions which plaintiff thought were designed to oust him as CEO. He immediately filed suit in Superior Court, seeking remedies under New Jersey's oppressed minority shareholder statute (N.J.S.A. 14A:12-7). Defendants (plaintiff's son, daughter, and former wife) counterclaimed, alleging that plaintiff had misappropriated corporate funds, and seeking an order barring him from participating in the company as an employee, director, or officer.

Following a lengthy trial, the General Equity judge found that plaintiff was not an oppressed shareholder and that, under the terms of the PSA, it was time for him to relinquish his duties as CEO. However, the judge did rule in his favor with respect to certain monies due him from a shareholder loan account. Partial counsel fees were awarded to his former wife, but no other request for fees was granted.

Both sides now appeal the counsel fee order. In addition, defendants appeal from the amount awarded plaintiff under his shareholder loan account, and from the judge's post-judgment refusal to credit defendants with amounts they allege were inadvertently paid to plaintiff following entry of the judgment.

We conclude that no counsel fees should have been awarded, and in that limited respect, the judgment is vacated. However, in all other respects the judgment is affirmed.

Plaintiff incorporated Lighting World, Inc. in 1968, and both he and his wife worked for the business. The company flourished, and in the late 1980s, its annual sales were between two and three million dollars.

Norbert and Linda separated in 1988, and two years later they executed a comprehensive PSA. Pursuant thereto, they waived alimony and Linda conveyed some of her stock to plaintiff so that each would own half the outstanding stock. The parties agreed to devise their interests in the company to their three children, Bruce, Elaine and Marc. The couple's older son, defendant Bruce Belfer, became a full-time employee in 1982 and was named a director in 1988. Their daughter, defendant Elaine Belfer, became a full-time employee in 1988.

Significant to this appeal, the parties agreed in the PSA that plaintiff "shall continue for the foreseeable future as the Chief Executive Officer of Lighting World, Inc." and that he "shall be responsible for the day to day operations of said corporation." Although Linda was to continue to be employed by the company, she "shall not continue to be involved in the day to day operations of said corporation." She was, however, allowed to have access to the company's books and to attend stockholder meetings as well as meetings of the Board of Directors.

In addition, the parties agreed that:

Nothing contained in this paragraph shall prevent the husband, as Chief Executive Officer, from making policy decisions concerning the direction of the corporation, the setting of salaries, or the entrance of the corporation into various contracts and ventures, both domestic and foreign with the following exceptions which shall be undertaken only with the consent of the wife:

a. The entry, by the corporation, into any long term leases (five (5) years or more in length).

b. The pledging of the corporation's assets or extension of credit on behalf of another entity in excess of $200,000.

c. The sale or acquisition of capital assets by the corporation in excess of $200,000.

The determination of bonuses shall be made jointly by husband and wife.

The parties recognize that the ownership of the stock on a 50-50 basis between the parties may result in a deadlock over some future policy or action as outlined above, or over the general direction of the corporation as examined at one of the semi-annual stockholders meetings. If said deadlock cannot be resolved between the parties, then the question or issue shall be submitted to a committee to resolve the deadlock, the decision of said committee being binding on both parties.

The Deadlock Committee shall consist initially of the retained accountant for the corporation and the parties' two children, Bruce and Elaine, who are now actively working for the corporation....

It is the intention of the parties to avoid, if possible, the dissolution of the corporation by court order, by reason of a complaint filed by either party in a court of competent jurisdiction concerning a deadlock over the corporation's operation.

The other two paragraphs of the PSA which have relevance to this appeal are the following:

38. In the event of any dispute arising out of this Agreement or the performance thereof, the husband and wife agree that attempts should be made to settle their dispute by Agreement before using the Courts for any determination.

39. Should either the husband or the wife fail to abide by the terms of this Agreement, the defaulting party will indemnify the other for all reasonable expenses and costs, including counsel fees, incurred by the other in successfully enforcing this Agreement.

The judgment of divorce was entered on September 4, 1990, incorporating this agreement by reference.

According to Mitchell Leckstein, plaintiff's matrimonial attorney, the "watershed" issue in the divorce was who was going to run the company. Once it was decided that plaintiff would run the company, it was assumed that he could run it indefinitely. Linda merely wanted safeguards in place so that plaintiff could not deprive her of her investment. Both parties acknowledged that their children would some day be in a position to run the company but they did not know if they would agree on when that would occur.

Leckstein further acknowledged that neither party wanted the children to have control over them or to be able to take sides. Also, neither wanted the company to fall into the hands of a third party such as a new spouse. Although they knew that the business would eventually go to their children, they did not want to commit to a specific date at the time of the divorce.

Linda's matrimonial attorney, Norma Rosenbloom, agreed that the main issue at the time of the divorce was how to give plaintiff control of the company while protecting Linda from unilateral decisions that might affect her income from the company. Linda agreed that she and plaintiff always envisioned their son Bruce taking over the business, but they did not know when he would be ready to do so.

With respect to the deadlock committee, both Leckstein and Rosenbloom recalled that it was the intent of the parties that the committee would have jurisdiction over more issues than just those listed in paragraph seven of the PSA. Those listed were intended only as examples. The parties had in mind major financial decisions on which they could not agree.

After the divorce, Bruce's role in the company expanded. On Bruce's thirtieth birthday, March 13, 1993, plaintiff and Linda agreed to make Bruce president of the company. Once he became president, Elaine became vice-president and chief financial officer.

Bruce immediately put his own "footprint" on the presidency. He started holding weekly breakfast meetings with his executive staff and he handled more executive functions. Plaintiff claimed that Bruce deliberately concealed and excluded him from these weekly meetings. As Bruce took on more roles, plaintiff had less to do and he was able to spend even more time away from the office.

Plaintiff also learned that Bruce was attempting to reassign a company patent to his own name, and to change the name of the company from "Norbert Belfer Lighting Manufacturing" to just "Belfer Lighting Manufacturing." For his part, Bruce claimed that his father became more lackadaisical and frustrated after Bruce became president and that he made no great effort to run the company.

Some time in the beginning of 1994, Bruce broached the idea to plaintiff of Bruce's becoming CEO. According to Bruce, plaintiff agreed. Bruce had papers drawn up, but when he presented them to his father plaintiff said he had no intention of resigning. Plaintiff denied ever telling Bruce that he could become CEO and indicated...